Stephen J. Powell & Dr. Andrew Schmitz University of Florida The WTO’s Cotton Decision: The Agreement on Agriculture Takes a Bite Out of U.S. Agriculture Policy Stephen J. Powell & Dr. Andrew Schmitz University of Florida

Green Box Subsidies Production Flexibility Contracts and Direct Payments Payment amount based on historical acreage and yield To qualify, must be decoupled from prices, which Brazil did not contest And not “related to, or based on, the type or volume of production”

Prohibited Crops Payments reduced if planted fruits, vegetables, melons, tree nuts, wild rice Evidence: Virtually all recipients with cotton base acres still planted cotton Possibility of payment reduction from prohibited crops means PFC/DP “related to” a type of production, so not Green

U.S. Domestic Cotton Support 1992 1999 2000 2001 2002 Market loans 866 1761 636 2609 897.8 User market’g 102.7 165.8 260 144.8 72.4 Deficiency 1017.4 PFC payments 616 574.9 473.5 436 DP 181 MLA 613 612 654 CCP payments 1309 Crop ins. 26.6 169.6 161.7 262.9 194.1 Total 2012.7 3404.4 2429.3 4144.2 3140.3

Serious Prejudice Significant price suppression PFC/DP and crop insurance = income support; not “discernibly price suppressive” Marketing loans, Step 2, MLA, CCP = price-contingent, so suppressive

Quantification of injury Not CVD, so need not calculate size of subsidies or level of price effect High US production and exports = substantial influence on prices Subsidies are “very large” World price in broad decline Same factors to find “significant” price suppression

Implications No clear guidance on serious prejudice Arbitral panel must quantify for retaliation purposes Fruit and vegetable exception likely was de minimis July 2004 Framework’s “new” Blue Box not big enough for both DP and CCP